AI GIORGIS OIL TRADING LTD V AG SHIPPING & ENERGY PTE [2021] EWHC 2319

Claim for outstanding hire, termination for non-payment, renunciation, and summary judgment

1.       The MT Marquessa, (the “Vessel”), a 2006 built Aframax tanker, was let by the Claimant owners (“Owners”) on timecharter to the Defendant charterers (“Charterers”) on an amended Shelltime 4 form.  

2.       The deposit was paid late, but the Vessel was nevertheless delivered into Charterers’ service. Of the following five hire instalments only one was paid in full, two paid in part, and the others remained unpaid. Owners suspended performance relying on the relevant clause in the c/p allowing for owners to suspend performance of the c/p while hire accrued.

3.       An addendum was agreed giving Charterers further time to pay, but again Charterers failed to do so. The sixth hire instalment fell due but, unsurprisingly perhaps, this remained unpaid. With some USD3,700,000 outstanding, the Owners accepted Charterers’ breach as a repudiation or renunciation, and elected to treat the c/p at an end and claim damages

4.       The Vessel was, at the time, laden and Owners, having exercised their lien over the cargo, agreed with the sub-sub-charterers (“Voyage Charterers”) to complete the voyage in exchange for payments to escrow, which they did.

5.       Owners then applied for summary judgment against Charterers for i) unpaid hire up to termination and ii) damages from termination following Charterers’ repudiation or renunciation.

Pre-Termination Claim

6.       Dismissing Charterers’ objections, the Court held:

i) Advance hire payment is the commercial quid pro quo for Charterers’ right to use the Vessel and crew. Allowing Owners to suspend performance for non-payment while not suspending accrual of hire was simply giving effect to the c/p.

ii) Owners were entitled to have regard purely for their own commercial interest and were entitled to payment for the continued availability of the Vessel.

iii) This was a claim for liquidated damages due under the contract, not damages for breach, and Owners were under no obligation to mitigate.  In any event mitigation would not have required Owners to refrain from exercising their c/p right to suspend performance, whilst the Charterparty remained on foot. Plus any obligation to mitigate would have been satisfied by    the arrangement with Voyage Charterers.

7.       Owners were granted summary judgment on the Pre-Termination Claim namely liquidated damages for outstanding hire (less address commissions, and sums paid by Charterers and Voyage Charterers).

Post-Termination Claim

8.       Owners claimed that Charterers’ failures to make contractual payments over the first five months of the term would lead a reasonable owner to conclude that Charterers would not pay punctually in advance as required by the c/p, constituting a repudiation and/or renunciation.  Conversely, whilst Charterers alleged repudiatory breach by Owners for suspending performance and reaching agreement with Voyage Charterers.

9.       It is first of all worth noting that the obligation to make punctual hire payments was held to not be a condition by the Court of Appeal in Spar Shipping SA v Grand China Logistics Holding (Group) Co. Ltd [2016] EWCACiv982. So, a failure to make a punctual payment, in itself, will not entitle the innocent party to terminate and something more is needed.

10.   The tests for repudiation and renunciation were summarised in the same dispute by Popplewell J when the case was heard at first instance, and later quoted by the Court of Appeal, as:

“(1) Conduct is repudiatory if it deprives the innocent party of substantially the whole of the benefit he is intended to receive…”

“(2) Conduct is renunciatory if it evinces an intention to commit a repudiatory breach, that is to say if it would lead a reasonable person to the conclusion that the party does not intend to perform his future obligations….

“(3) Evincing an intention to perform but in a manner which is substantially inconsistent with the contractual terms is evincing an intention not to perform”.

(4) An intention to perform connotes a willingness to perform, but willingness in this context does not mean a desire to perform despite an inability to do so

11.   In Spar Shipping SA v Grand China, the Court of Appeal expanded on a number of points. An unwillingness to perform the contract according to its terms may likewise amount to renunciation. Renunciation may be inferred if it is clear that the defaulting party is doing no more than procrastinating, and, as renunciation looks to the future, it may be inferred from past breaches, even if these breaches may in themselves be insufficient for repudiation.

12.   Applying the test to the present case, the Court held the consistent failure to pay hire on time had deprived Owners of “substantially the whole benefit” of the c/p, and Charterers were trying to hold Owners to an arrangement which was “radically different” to what was agreed.

13.   Although Charterers had expressed a willingness to perform, they had proved unwilling or unable to do so. Owners had not been receiving the hire payments and had reasonable grounds to believe that they would not be receiving the future regular payments they had bargained for. Charterers were held to be both in a repudiatory and a renunciatory breach of the c/p.

14.   Charterers’ claim of wrongful termination by Owners was dismissed as Owners were within their rights to suspend performance and to mitigate with the Voyage Charterers.

15.   Owners were granted summary judgment on the Post-Termination Claim. Owners only sought summary judgment for hire accruing from acceptance of repudiation/renunciation until the date of cargo discharge, with post-discharge sums to be determined at trial due to complexity. As the vessel was laden up to discharge, and no replacement charter was possible, damages were set at a sum equivalent to the charter hire less commission and ROB.

Take Away Points:

• Owners’ right under the c/p to suspend their performance while hire accrued was not a discretionary right that had to be exercised reasonably or selflessly.

• A consistent failure to pay or pay on time will amount to a repudiatory breach.

• Charterers’ attempt to hold Owners to a radically different performance will amount to renunciation.

• Doing no more than procrastinating may amount to renunciation, and past breaches may be used to infer renunciation even if the past breaches were not sufficient to repudiate the c/p.